Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $700,000 long-term loan from Gulfport State Bank, $200,000 of which will be used to bolster the Cash account and $500,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow: Sabin Electronics Comparative Balance Sheet This Year Last Year $ 150,000 $ 737,000 1,145,000 38,000 2,070,000 2,300, 800 4,370,800 350,000 17,000 500,000 795,000 42,000 1,704,000 1,530,000 3,234,000 $ $ Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders Equity Liabilities: Current liabilities Bonds payable, 12% Total liabilities Stockholders' equity: Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 900,000 1,800,000 420,000 900,000 1,320,000 890,000 1,680,800 2,570, 800 $ 4,370,800 890,000 1,024,000 1,914,000 $ 3,234,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Sales $ 6,000,000 Cost of goods sold 4,075,000 Gross margin 1,925,000 Selling and administrative expenses 693,000 Net operating income 1, 232,000 Interest expense 108,000 Net income before taxes 1,124,000 Income taxes (30%) 337,200 Net income 786, 800 Common dividends 130,000 Net income retained 656,800 Beginning retained earnings 1,024,000 Ending retained earnings $ 1,680,800 Last Year $ 4,950,000 3,650,000 1,300,000 588,000 712,000 108,000 604,000 181,200 422,800 109,000 313,800 710, 200 $ 1,024,000 During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 3/10, n/30. All sales are on account. Required: 1. To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year: a. The amount of working capital. b. The current ratio. c. The acid-test ratio. d. The average collection period. (The accounts receivable at the beginning of last year totaled $450,000.) e. The average sale period. (The inventory at the beginning of last year totaled $700,000.) f. The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year were $3,194,000.) h. The debt-to-equity ratio. i. The times interest earned ratio. j. The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,904,000.) 2. For both this year and last year: a. Present the balance sheet in common-size format. b. Present the income statement in common-size format down through net income. To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year: a. The amount of working capital. b. The current ratio. (Round your answers to 2 decimal places.) c. The acid-test ratio. (Round your answers to 2 decimal places.) d. The average collection period. (The accounts receivable at the beginning of last year totaled $450,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) e. The average sale period. (The inventory at the beginning of last year totaled $700,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) f. The operating cycle. (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) g. The total asset turnover. (The total assets at the beginning of last year were $3,194,000.) (Round your answers to 2 decimal places.) h. The debt-to-equity ratio. (Round your answers to 2 decimal places.) i. The times interest earned ratio. (Round your answers to 2 decimal places.) j. The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,904,000.) (Round your answers to 2 decimal places.) Show less This Year Last Year days days days a. Working capital b. Current ratio c. Acid-test ratio d. Average collection period e. Average sale period f. Operating cycle g. Total asset turnover h. Debt-to-equity ratio Times interest earned ratio Equity multiplier days days days Present the balance sheet in common-size format. (Round your answers to 1 decimal place.) Sabin Electronics Common-Size Balance Sheets This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Bonds payable, 12% Total liabilities Stockholders' equity: Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and equity Present the income statement in common-size format down through net income. (Round your a Last Year Sabin Electronics Common-Size Income Statements This Year Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income